Delta, Northwest agree to merger

Tue, 04/15/2008 - 3:40pm
By: John Thompson

Monday evening’s announcement that Delta Air Lines and Northwest will merge has now set off a guessing game for the impact on the local community.

The initial reaction has been optimism since the headquarters of the jumbo airline will be in Atlanta and run by Delta’s executives.

In a memo sent to employees Monday, Delta’s CEO Richard Anderson said non-pilot employees would receive a 4 percent stake in the new company. He also said that all Delta front-line employees would receive a raise and no hubs would close. Both Delta and Northwest’s pilots unions will also have to sign off on the merger details.

“Delta pilots will participate in the benefits of the combined airline through a new four-year agreement that facilitates the integration of the carriers and realization of the combined revenue synergies. With respect to Northwest pilots, Delta is committed to use its best efforts to reach a combined Delta-Northwest pilot agreement, including resolution of pilot seniority integration, prior to the closing of the merger,” read the employee memo.

The merger between the two carriers is an all-stock transaction with a combined enterprise value of $17.7 billion, creating the word’s biggest airline.

According to a press release issued Monday, small communities throughout the United States will enjoy enhanced access to more destinations worldwide. Customers also will benefit from the combined carriers’ complementary route networks, which together will offer people greater choice, competitive fares and a superior travel experience to more cities than any other airline.

Delta Chairman of the Board Daniel Carp will become chairman of the new Board of Directors and Northwest Chairman Roy Bostock will become vice chairman.

Ed Bastian will be president and chief financial officer. The Board of Directors will be made up of 13 members, seven of whom will come from Delta’s board, including Anderson, and five of whom will come from Northwest’s board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association (ALPA).

Delta will have executive offices in Atlanta, Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo.

Combined, the company and its regional partners will provide access to more than 390 destinations in 67 countries. Delta and Northwest, together, will have more than $35 billion in aggregate annual revenues, operate a mainline fleet of nearly 800 aircraft and employ approximately 75,000 people worldwide, said the release.

The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilization, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency.

The company expects to incur one-time cash costs to not exceed $1 billion to integrate the two airlines.

Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices. The merger is subject to the approval of Delta and Northwest shareholders and regulatory approvals. It is expected that the regulatory review period will be completed later this year, read the press release.

Richard Anderson, Delta CEO, stated: “We said we would only enter into a consolidation transaction if it was right for all of our constituencies; Delta and Northwest are a perfect fit. Today, we’re announcing a transaction that is about addition, not subtraction, and combines end-to-end networks that open a world of opportunities for our customers and employees. We believe by partnering with our employees, including providing equity to U.S.-based employees of Delta and Northwest, this combination is off to the right start. Together, we are creating America’s leading airline – an airline that is financially secure, able to invest in our employees and our customers, and built to thrive in an increasingly competitive marketplace.”

U.S. Rep. Lynn Westmoreland, a member of the Aviation Subcommittee of House Transportation and Infrastructure, issued the following statement Tuesday morning.

“My greatest concern throughout all of the merger discussions was the possibility of Atlanta losing the Delta headquarters, which is not only a big part of our economy but also a big part of our identity. Like I told the Delta CEO at a hearing last year, Delta’s a Georgia company and we want to keep it that way.

“Keeping the headquarters here was obviously a big priority, and we’re relieved that Delta will remain in Atlanta. It makes good business sense for the new company too. Georgia continues to expand as a national economic hub and Delta is the prime carrier at the world’s busiest airport. Now that we’ve got that taken care of, our future concerns will revolve around keeping as many jobs here as possible and assuring that promises made to Delta retirees are kept.

“I understand the financial pressures and steep competition faced by our nation’s legacy carriers, and I understand the need for these mergers in some instances. We all hope that this works out best for the industry and for Georgia in the long run, but we on the Aviation Subcommittee are going to have to keep a close eye on how these mergers affect competition and prices in air travel. We have to give airlines a fair chance to compete but we have a high burden to protect consumers as well. As with all complex corporate mergers, the devil is in the details and I look forward to learning those details in the near future.”

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